xliv
from other sources, such as central government support or from borrowing. Since independence ratio is partly developed based on PAD value, therefore the
first and second hypotheses are formulated as follows: Hypothesis 1 H1 =
Local Taxes influence the local government independence ratio.
Hypothesis 2 H2 = Local Retributions influence the local government independence ratio.
2. The relation between economic growth and independence ratio
Gross Domestic Product GDP- Produk Domestik Bruto is one of the macro- economic indicators which are generally used to measure economic performance in a
country. While for the district, provincial, and regency city level, usually used the Gross Regional Domestic Product GRDP- Produk Domestik Regional Bruto.
Theoretically can be explained that the GDP is part of GRDP, and thus the changes that occur at the regional level will affect the GDP or vice versa.
PDRB is reflection of certain area potency and economy activities, which measure based on total output of gross production in certain area UU No.33 Year
2004. GRDP may reflect the ability of a region to manage its natural resources.
xlv Therefore, the amount of GDP generated by each province relies heavily on natural
resources and production factors of a particular area. The limitations in the provision of these factors cause the varied amounts of GDP between regions.
One major purpose of fiscal decentralization is the implementation of local government independence. Local government expected to be able to gain local
financial revenue, especially from local own revenue PAD Sidik 2002 in Adi 2006. The increase of PAD actually is as result of economy growth. Local area with
positive economy growth will have high possibility in PAD rise Adi 2006. PAD growth should be sensitive to Gross Domestic Regional Revenue Pendapatan
Domestik Regional Bruto – PDRB growth. Bappenas research 2003 show that PAD
elasticity analysis toward PDRB conduct in province level show there are 12 province 41,37 have elasticity value
≥ 1 higher than one. This result showed that every change in PDRB explaining economy growth will give positive and significant
impact toward PAD change. Economy growth in the context of local area can be calculated with the
formula below Kuncoro 2004; in Adi 2006: Level of Economy Growth = PDRBt – PDRB
t-1
PDRB
t-1
x 100 Explanation:
PDRBt = Produk Domestik Regional Bruto on year t PDRB
t-1
= Produk Domestik Regional Bruto a year before year t
xlvi Industrial sectors, especially services, need to be optimized. Taxes and
retribution as the largest component of the PAD is highly related to the activities of the industrial sector. Taxes and retribution is actually the excess more optimal value
of this industry sector Kadjatmiko and Mahi in Sidik et all, 2002. In other words, the domestic growth of this sector can be used to estimate the magnitude of PAD tax
and retribution that will be accepted.
Generally, GDP per capita can be assumed to be a good indicator of revenue raising capacity Blöchliger and Charbit 2008. Adi research 2006 find
that economy growth have significant impact toward PAD growth. Local government independence ratio shows local government ability in
finance their own govern and development activities. Local financial independence ratio explained by the comparison between local own revenue
PAD toward local revenues that come from other sources, such as central government grant or from loan Widodo 2005. Since independence ratio is
partly developed based on PAD value, therefore the third hypothesis is formulated as follows:
Hypothesis 3 H3 = PDRB influence the local government independence ratio.
3. The relation between revenue sharing and independence ratio
